COVID-19 is accelerating the sense of vulnerability, collapsing economic activity and has created a need to re-invent the way we operate.
We have an urgent choice to make on how to direct our finance, technology and policies as we recover from the COVID-19 pandemic.
Limiting climate change to a 1.5°C rise by the end of the century will leave the economy an estimated 5% higher than a 2°C rise. Maintaining the current trajectory at ~4°C will leave society severely degraded.
Which scenario will we choose?
Published in early 2020, Cristiana Figueres and Tom Rivett-Carnac’s new book ‘The Future We Choose’ envisions two future scenarios from a 2050 viewpoint. While neither scenario features a virus-driven pandemic ravaging economies and societies, both futures are shaped through crises, and the climate crisis centrepiece is as bound to human activity as is COVID-19.
The first scenario follows the trajectory we are currently on. It does not make for a comforting read. The second describes a place which, whilst not utopia, sees technology, capital, the knowledge economy, nature-based solutions, and strong citizenship being applied in a way that makes life recognisable, attractive and on track to limit the rise in global temperatures to 1.5 degrees.
The trigger for this application of our human resources was worsening climactic conditions. Whilst this is undoubtedly happening in reality, COVID-19 is accelerating the sense of vulnerability, collapsing economic activity and a need to re-invent the way we operate in short-order.
Net Zero by 2050 is Critical for 1.5 Degree Scenario
Figueres and Rivett-Carnac suggest that a vital ingredient of reaching the 1.5 degree scenario is reaching Net Zero emissions by 2050. Whilst the meaning and definition of Net Zero is a current hot topic amongst organisations, governments and businesses, in general there is a focus on avoiding, reducing, eliminating and removing atmospheric carbon equivalent to an organisation’s footprint over a time period, so that come 2050 (or whenever the selected date is) the carbon book is balanced. This is no simple task, as it touches on the system of systems within which that organisation operates, and we do not have all the solutions ready to pull off the shelf. Underpinning everything, investment and innovation will be needed.
Turning the super-tanker
A rough count of a select group of government pledges (US, EU, Germany, China, UK, France, Japan) to prop up societies and stimulate economies in response to the fallout from COVID-19 equates to approximately US$9.124 trillion. Larger estimates put this at over US$22 trillion for the global pledge to date. This is clearly seen as an investment, designed to protect and maintain, rather than a straight cost. The question gaining momentum is whether we should have higher ambitions and attach strings to the money that tackles both the economic and climate crises together. Build Back Better is one such campaign.
It has been estimated that the investment required to the world achieving a 1.5 degrees warming is annually US$2.4 trillion. Much of the work required to transform the infrastructure would be both labour and capital intensive, providing a much needed stimulus such as is outlined in the US and EU green deals. The reference point for much of this is the New Deal which helped to kick start the US economy following the Great Depression of the 1930s.
However, what is different this time is the level of interest and awareness being shown by institutional and private investors. Despite the pressures and confusion caused by COVID-19, there were record inflows of investment into ‘sustainable funds’ in the US in Q1 2020. There is a view that this is due to asset owners increasingly understanding that governments are not correctly managing the risk associated with climate change and that investors need to manage that risk better themselves. Hence the rise of Environmental, Social, and Governance (ESG) as a determining factor, as voiced by Blackrock’s Larry Fink in his letters to both investors and CEOs.
Additionally, the drop in oil prices compared to the relative stability of renewables during the recent crisis may provide the financial incentive needed for more sustainable investment. This has not only levelled the playing field in terms of return on investment but may signal a trend to it becoming a much safer option for investors in the future.
Cost or investment?
The world economy was worth an estimated US$86 trillion in 2019. With nothing done, and a global temperature increase topping 4 or more degrees, this is likely to be severely degraded. The bad news is that our economic activity is likely to be hit under any warming scenario, however it has been modelled that the global gross domestic product (GDP) will be 5% higher under a 1.5 degree temperature rise than under a 2 degree rise.
With an approximate 2% investment of annual GDP required to make the transition to the scenario described by Figuerres and Rivett-Carnac, plus the need to rebuild economies, the world is being handed just such an opportunity to transition. Evolutionary palaeontologists Stephen Jay Gould and Niles Eldredge described a theory of punctuated equilibrium, whereby a species is stable for a period then undergoes a rapid transformation often due to external factors.
Human society must seize this moment where our equilibrium has been punctuated and evolve rapidly in order to survive.
Key components to building towards Net Zero:
◦ Better design
◦ More informed decision-making
◦ Circularity of materials
◦ Smarter built environment & transportation
◦ Utilisation of digital tools
◦ Low carbon supply chains
Building a better future
In upcoming insights, we will explore the key areas of intervention and technologies needed to build a Net Zero economy and society. This includes better design, more informed decision-making, economic circularity of materials, a smarter built environment, using digital to drive carbon intelligence, different transportation, low carbon supply chains, and a focus on the leading actors in developing Net Zero definitions.
If you have any questions on the Net-Zero agenda, please share your comments in the form below and we’ll be in touch.
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